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* SEC charged Citigroup over marketing of $1 bln CDO

* Manhattan federal judge had rejected $285 mln accord

* Evidence from Stoker trial could make review easier

By Jonathan Stempel

Aug 13 (Reuters) - The Manhattan federal judge who last year
rejected the U.S. Securities and Exchange Commission's civil
fraud settlement with Citigroup Inc is standing by that
decision, but may be ready for a second look at the $285 million
accord after presiding over a related trial.

In a Monday filing with the 2nd U.S. Circuit Court of
Appeals in New York, a lawyer representing U.S. District Judge
Jed Rakoff said the Nov. 28, 2011 rejection was proper, accusing
the SEC and Citigroup of seeking a "rubber stamp" and failing to
offer "any evidence of any kind" to justify it.

The lawyer, John "Rusty" Wing, also questioned why the $95
million fine included in the penalty was less than one-fifth the
fine that Goldman Sachs Group Inc accepted in a $550
million settlement the prior year over similar conduct.

But now that Rakoff has completed a trial in which a jury on
July 31 cleared former Citigroup mid-level executive Brian
Stoker of negligence, the judge "has a substantial evidentiary
record" upon which to review the settlement if the appeal is
denied or dismissed, Wing wrote.

Citigroup's settlement was intended to resolve charges that
the third-largest U.S. bank in 2007 created a $1 billion
collateralized debt obligation without telling investors it was
betting against the underlying mortgage securities.

The SEC had said Stoker, who helped Citigroup prepare sales
materials for the CDO, should have revealed the bank's bet.

Stoker, the only individual charged, countered he was being
made a scapegoat.

While the jury ruled in his favor, it issued an unusual
statement encouraging the SEC to continue investigating the
financial services industry.

Few senior banking executives have been accused of
wrongdoing in connection with transactions leading up to the
2008 financial crisis.

Rakoff's rejection of the Citigroup settlement challenged
the decades-long practices of the SEC and other federal agencies
of letting companies settle cases without admitting wrongdoing.

He forced the SEC in 2010 to strengthen a civil fraud
settlement with Bank of America Corp over that bank's
takeover of Merrill Lynch & Co, a battle that Wing said the SEC
and Citigroup "were intimately familiar with."

While the outcome of Rakoff's appeal is unclear, the 2nd
Circuit has chastised the judge for having appeared to overstep
his authority, saying it is not "the proper function of federal
courts to dictate policy to executive administrative agencies."

It also said forcing an admission of liability might even
hurt the public interest because it would "in most cases
undermine any chance for compromise."

Wing is a former colleague of Rakoff in the U.S. Attorney's
office in Manhattan. The 2nd Circuit appointed him to argue for
Rakoff because the SEC and Citigroup took the same side.